An independent U.S. court-appointed examiner reported that Celsius had used customers’ deposits to prop up the CEL token and enrich two of the company’s founders.
The report by former prosecutor Shoba Pillay looked into allegations the bankrupt crypto lending platform operated like a Ponzi scheme. She uncovered evidence of dodgy dealings, including CEL “buying sprees” to drive the token price higher, with insiders “benefiting the most” through timely cash outs.
Celsius token manipulation
After rumors of insolvency, Celsius paused withdrawals on June 12, 2022, citing “extreme market conditions.” At the time, the firm said this was necessary to “stabilize liquidity and operations,” triggering further chatter that things were worse than being let on.
Celsius filed for bankruptcy on July 13, 2022, disclosing an approximate $1.2 billion black hole in its balance sheet.
“As of July 13, 2022, the company had $5.5 billion in total liabilities and $4.3 billion in assets. Celsius said it owes consumer users (as opposed to institutional partners) more than $4.7 billion.”
Since then, multiple allegations of wrongdoing have been leveled at the company and the management team, especially co-founder and CEO Alex Mashinsky.
For example, back in July 2022, former Celsius Compliance Director Timothy Cradle blew the whistle on senior executives discussing deliberate price manipulation of the CEL token.
“I don’t know what better way to phrase it. But they were in the market, they were actively trading and increasing the price of the token.”
Court investigation confirms
Pillay’s report stated that the Celsius business model was to gather retail customer deposits and invest the funds in the “wholesale market.” Capitalizing its operations came in part through the sale of CEL tokens.
CEL was an integral part of the business in that the company would buy its own token in the secondary market and distribute them as rewards to customers using the platform.
The reasoning for this was twofold, firstly to incentivize new business and also as a demand driver to lift the CEL price higher. This business model was described as a self-sustaining “flywheel.”
Pillay confirmed that from 2020, the company engaged in actively buying its own token to further drive CEL higher. Celsius had spent $558 million buying its token while failing to disclose this as the primary reason for the CEL token rising.
“The business model Celsius advertised and sold to its customers was not the business that Celsius actually operated.”
However, this eventually led to Celsius paying out more than it generated in revenue, debunking the company’s “flywheel” approach to business.
In cashing out CEL tokens between 2018 and the bankruptcy filing date, Mashinsky personally benefited to the tune of at least $68.7 million. At the same time, fellow co-founder Daniel Leon pocketed at least $9.7 million.
